BrainTrust Query: Where Are the Merchants?
Commentary
by Bill Emerson, President, Emerson Advisors
Retailing
has always had its tough periods but, in living memory at least, nothing
as extended or as broadly based as the current period. The
discussions and commentary these days all seem to focus on things like
internet strategies, inventory strategies, Black Friday strategies, social
media, CRM, new technologies – worthy topics all. The
one thing that is not being discussed is the most fundamental element
of retailing – the merchandise.
Take
apparel for instance. Go
into any regional mall; apparel and accessories are still the dominant
category of merchandise in terms of square footage and inventory investment.
But the merchandise offering is stale – same fabrics, same colors, same silhouettes,
basically the same thing that’s already in your closet.
One
of the basic requirements in retail success is to offer the customer
something that excites them enough to part with their money. It
seems that today the answer is to put out lower quality merchandise and
then promote it like crazy – coupons, interlocking one-day sales, early
bird specials, and so on ad nauseum.
Merchandise
assortments belong to the merchants. What makes a great merchant in today’s
environment and where are they?
To
find the great merchants, you look for those having the most success
without having to rely on POS price promotions. Is
there anybody out there that fits this bill? Well,
it’s estimated that Amazon will sell 500,000 Kindles this year at $300+
apiece. No
discount there. It’s estimated that Apple
will sell over 45 million iPhones this year. No
discount there. The
Apple 4-wall stores, from the day they opened, have completely reset
sales per square foot standards, moving the bar from hundreds of dollars
per foot to thousands. No
Black Friday specials there. They’re
in the same malls as the apparel stores.
What
about apparel. Any
examples there? Well,
Mickey Drexler has taken J. Crew from a moribund company to a thriving
business. The
folks at Buckle, American Eagle, and Urban Outfitters are doing fine.
What
do Jeff Bezos and Steve Jobs have in common with Mickey Drexler? They
understand that, in the end, it’s all about the product. It’s
all about offering innovative products that excite their customers enough
to part with their money.
Until
the other apparel merchants figure this out, expect continued poor performance
and disappointing sales.
Discussion
Questions: Have merchandising skills eroded? If so, what’s causing the
decline? Where are the great merchants today and how has the merchandising
role changed?
The iconic merchants are few and far between. Mickey Drexler is one, and so is Les Wexner. And let’s not forget Roger Markfield at AEO. At their hand their brands have continuously reinvented themselves to meet the changing economic and consumer environments; a daunting task. We hear all the time that it’s impossible to innovate and grow with a long view in light of the short-term Wall Street mentality. But, somehow these guys have done it over and over again. Not to say that they haven’t made mistakes, but the difference is that they believe strongly in their brand and their abilities and the are willing to stand firm when the going gets tough. Are there up and coming merchants like them, absolutely! It will be fun to see them emerge.
The same retailers who drove modest comp-store increases a couple of years ago are now suffering through two of the toughest years in memory. It’s easy to blame lack of merchandising skills for the downturn, but the fact is that every good merchant didn’t get stupid overnight. That being said, there are some core principles of good merchandising worth remembering as most national retailers work to fight their way out of the recession:
1. Focus on key items: A “hot item” or focused category will do well in any economic climate, and the success stories of the iPhone and Kindle are perfect examples. It may take more creativity to apply this lesson to apparel businesses, but it’s no less important.
2. Take your own markdowns: Retailers have been guilty for awhile of “musical chairs” buying assignments. It may take a couple of years before a new buyer gains the experience needed to figure out what works and doesn’t work. Keep people in their chairs long enough to be responsible for their own wins and losses.
3. Be less risk-averse: The pressure to avoid mistakes has grown along with the trend toward retail consolidation and the emphasis on quarterly results. It’s time to balance financial caution with the recognition that retailing–at its best–is a high risk/high reward business.
I don’ t know if merchandising skills have eroded or if we are just over-retailed. There will always be some merchants that stand out from the crowd. Not every merchant can achieve the success or notoriety of Apple or Amazon, but there may be too many that are trying.
This topic has been considered by the BrainTrust Panel in the past. Perhaps it should be discussed again.
The apparel industry at the retail level has been in decline for quite some time and the 2 biggest factors are a true lack of leadership and vision at the executive level and unqualified associates at the store level. Hiring standards in the apparel category are now so low that it is no wonder that we are seeing declines in sales and image in this category.
Now that traffic is reduced, retailers are now having to rely on these “throwback associates from when times were good” to sell, up sell and maintain the store. Apparel is such a competitive industry now that merchants must scrutinize their new hires and bring in people that will enhance the brand, not detract from it.
Merchandising skills haven’t eroded as much as they haven’t kept abreast with swift, ever-changing consumer styles, wants and behavior. Consumers seem to want to keep retailers on their tippy toes…and they are succeeding.
Great points and examples! I believe this is a generational thing. I cut my teeth in Los Angeles at the Broadway Department stores at the same time Terry Lundgren was cutting his at Bullock’s Wilshire. What we were presented with were the old-guard retailers, ones excited by retail, by customers, by working in a beautiful box. Unfortunately, that spirit died out with the blue-hairs as retailers turned to Wall Street to tell them how to run their businesses.
One area where the lack of attention to core merchandising is apparent is online. Many of these merchants have failed to appropriately link products together, resulting in irrelevant cross-sells and up-sells. They are too focused on slick displays, involvement in social media, and the potential for mobile selling. All of these forward-looking technologies are great for selling, but core merchandising practices must come first.
I do think we’re over-retailed. And risk-averse. But we’re also way too far from the customer–something that, for all the complaining from fans about the converse, Apple for one is not. They make a big show of being aloof and telling folks that the user doesn’t know what s/he wants. But then Steve Jobs comes out with a statement like, about the iPod Touch: “Customers were telling us, ‘You don’t know what you have here. This is a…’ (I–Mary–forget exactly what they called it)…and then we realized we needed to market it as the lowest-cost way into the App Store.”
And, what continues to boggle my mind is how fashion merchandise gets smaller and smaller as the American woman gets bigger and bigger. Why can’t I buy a pair of pants from Chico’s or the Gap, or the Limited? I have money to spend. I like being somewhat contemporary. But they steadfastly refuse to carry anything bigger than a 14-16.
And please don’t tell me to diet and exercise my way into their sizes. Dieting made me crazy, and I already play tennis–hard–more than five hours a week.
And even Talbots and Coldwater Creek, who carry my size, insist that I shorten every pair by three to four inches before I can wear them. That takes time I don’t have. They sit on the sewing machine for weeks, or require a stop at the alterations lady. Why not just make the pants at a length I can wear coming out of the store?
I’m sure I’ve mentioned the CC training class where they told their associates the target audience was nurses and teachers in 4-5 inch heels. In their forties and fifties.
I ask you–on what planet?
And nurses, at least, understand what kind of damage those heels do to the rest of the body.
There are two opportunities: merchandise and merchandising. Having the right products is critical of course, but displaying it so that customers become engaged with the products is as important. When you see your gifts on Christmas morning are you expecting the best presents to be wrapped in the wrinkly paper with tape placed randomly on it, or neatly bound in foil paper and a beautiful bow?
Why would shoppers feel differently?
When retailers present their wares in displays that invite “ooh’s and aah’s” consumers pause to consider the merchandise. Having something shoppers want and what they will buy requires showing it off and takes into account product, value, and visual appeal.
Yes, Apple has the innovative electronics and Amazon has a hit out of the park with Kindle. These are products that transcend merchandising. However, for apparel, accessories and some other electronics (e.g., Tom Tom’s and Gremlins) retailers have to grab the shopper’s attention, engage, and persuade. These are basic tenets of effective communications. Merchandising is another very important form of communications, depending on sight, touch, smell, and other senses.
When shoppers are in the store, retailers (and the manufacturers they represent) are at the most critical crossroad of marketing and selling. It’s the final link in the strategic chain…and if this link is weak, it results in lost sales.
Everything about the current situation–consumer behaviors, retail balance sheets, competition from other categories (like the two blockbuster consumer products examples mentioned)–leads the retailers to be more conservative in their apparel offerings…quantities, materials, styling, fashion risks, etc. The innovation in apparel will return but the Merchants in the major chains are more likely to be chasing than leading when it finally happens. This is more a function of today’s broader business realities than a general erosion in skills.
Here I go again telling you about the independent apparel retailer! They are merchandising and they are doing good business. Go into a small, individually owned store and experience the oohs and aahs of the display–see the personalized service of being called by your first name. Get the free gift wrap, the thank you note, the call back when your item arrives–the hug, the friendly y’all come back and a cup of eggnog, to boot!
These things are still alive and they’re in the small stores of America. Unfortunately, most of those folks wear so many different hats that the marketing end gets cheated occasionally and shoppers may not really know what’s out there. But I promise the merchandising is still hand-selected, personalized, priced fairly and of good quality–not purchased at off price for an upfront discount!
I am working daily (and most of the times late at night, too) to make sure these small independent stores can stay afloat in these times. Keep the American tradition alive. Within a few minutes of you, I promise there is a wonderful lady just waiting for you to walk into her store!
To me, the best companies know that the best merchants are the ones they empower at the store level. I’d hand that eureka award out to Glen Senk at Urban Outfitters. Urban Outfitter’s namesake stores and completely different Anthropologie locations both employ store-level artists and designers who are charged with creating unique environments (“narratives” as Mr. Senk refers to them) that make each store more interesting to shop. I’ve never visited an Urban Oufitters store when store associates weren’t busy rearranging displays (and providing great customer service at the same time). UO does a fantastic job marketing their philosophy through multiple websites (their blog being one of my favorite culture-fix destinations), and even through a show on Sundance Channel that chronicals Keith Johnson’s global procurement travels as buyer-at-large for Anthropolgie (with a keep-it-in-the-family twist…Mr. Johnson is Mr. Senk’s partner).
I’ve always believed that successful retailing is equal parts art, craft and science. When I was coming up in the business many years ago, I worked with buyers who had an intuitive feel for merchandise, who had excellent batting averages in both strong and weak markets. I was trained by buyers who had a great understanding of how to work a market and construct a season. And I was taught how to take the art and craft, and deliver a number.
As mass-market retailing has raced to the bottom, retailers have excelled at squeezing costs, driving volume and capitalizing on economies of scale. But they’ve lost the art and craft. The business models are all built around “measure and manage,” but how do you quantify a merchant’s eye and feel for color, fabric and cut, or the craft a buyer brings to working a market and intelligently testing items?
Apparel, in particular, has become a commodity at all but the highest price points. It’s all the same, with very little that’s distinctive, very little that stands out clearly to the customer that they must buy that top or that dress. In mass-market retailing, with few exceptions, it all comes down to the discount and price point these days.
This is where highly skilled independents have an advantage. This is where the art and craft of retailing can still be brought to a discerning customer. This is where a merchant with a great eye and feel can still deliver outstanding fashion to customers who recognize and value what they bring to the table.
Talk about a lost skill set. Most retail ‘chains’ have engineered the creativity out of merchandising by opting for uniformity and sameness through the use of precise plan-o-grams and “example floor set photo shoots.” They tell their associates, “here; just do this.” It’s really a part of why retailers are doing so poorly; the associates haven’t been taught to think for themselves (this includes fundamental sales techniques as well).
Two great merchandising examples: Whole Foods; the stores are lessons in classic power merchandising with the perfect blend of cross selling and interesting up sells–WF has sent a message to the grocery world: Merchandising IS important! And then the Urban brands; Anthropologie and Urban Outfitters. At the IRDC conference, their CEO said, “you’ve got to entrust locals to run your business,” and with that spot-on philosophy comes visual merchandising that is interesting, creative, unique and sells product. Given these two examples; it can be done!
Yes, and it’s all Walmart’s fault! Well, all right, maybe not ALL, but you know what I mean: price has often become the only criteria on which to judge; there are, of course, a number of reasons for this, and it’s not always bad (since terrible companies that offer nothing special AND high prices will be properly shunned); but still, it makes it very difficult to judge companies that offer (what seem like but really aren’t) “non-competitive” prices for a reason.
With a few exceptions noted above (Amazon, Apple, Urban, J. Crew,), retail is increasingly an unexciting proposition, both in terms of merchandise and merchandising. Many stores are simply “unshoppable” and even more are so completely devoid of employees who can actually sell that it’s no wonder we are including Amazon with brick and mortars in the top retail “merchants” list. We can skip the whole discussion about standards other than the slow economy has certainly helped here.
There are lots of reasons but here are four to consider:
1. Too many chains are not run with merchants or marketers at or near the top. See reason number two below.
2. There is too much financial engineering and re-engineering and over-engineering to allow the managers to actually manage the business like a retailer. This is partly attributable to too many stores and too many chains that stand for very little other than a turnaround situation or another player that doesn’t stand for enough to stand out. The recession provided some help here as we now have a few less chains out there that had been irrelevant for too long (e.g., Circuit City, or as I used to say, Circuit Sh*#&y).
3. The customer is rarely integral and central to the strategy of retailers. With the exceptions noted above. Bezos, Drexler and Senk always talk about customers and in fact, their whole approach to retail starts with customers. Great merchants are solving for an equation that equals customers. This is not a complex idea.
4. There is increasingly a lack of talent and creativity to move into new areas. Who wants to go into retail these days? Where are the prudent risk takers? Pop-up stores are one thing but those are often more tactical moves than strategic, game-changing shifts. For many young and talented job-seekers, there are many other equally psuedo-glamorous businesses to go into that all pay much better than retail. The training programs of the large chains are arguably nothing like they used to be, as the retailers that used to run those programs are themselves nothing like they used to be.
So as dismal as retail can be, the flip side is that there is more opportunity than ever to stand out. It takes an idea, discipline and passion for the business, goods and customers. Much like a lot of industries!
Of course merchandising is challenged. I do not know when it has not been. A good, a top merchant is not a common thing and most of the shuffle around practice in firms does not speed this along as when each new merchant gets up to speed they then shift categories.
That said, it is well known and also known what happens when good ideas get put in place. Other commentators note well that focus on Street results often hurts execution as does the endless focus on price. However, once good efforts like Amazon or Apple are out there, reaction occurs and for the strong or aggressive, the rewards are there too.